European Equities: Can the Majors Brush Aside the Trade War Angst?

The Majors

The European majors took another hit at the start of the week. Leading the way down was the EuroStoxx600, which fell by 2.31% off the back of last week’s 3.22% slide.

Things weren’t much better for the CAC40 and DAX30, which declined by 2.19% and 1.80% respectively. For the pair, the losses came off the back of 4.48% and 4.41% declines respectively from the week prior.

Asia set the tone early on, with the Chinese Yuan sliding to beyond CNY7.00 against the greenback. Trade war chatter drove risk aversion as news of China ceasing the import of U.S agricultural products hit the wires. There was also chat of China’s plans to withdraw from the U.S – China talks altogether…

The Stats

It was a relatively busy day on the economic data front.

Economic data out of the Eurozone included Spanish and Italian service sector PMI numbers for July. Finalized service sector PMIs out of France, Germany and the Eurozone also influenced.

Italy’s service sector PMI rose from 50.5 to 51.7, which was better than a forecasted rose to 50.6. Spain’s service sector saw slower growth in July, however, with the PMI easing from 53.6 to 52.9.

According to finalized PMI numbers, France’s service PMI came in at 52.6, which was up from a prelim 52.2. Service sector activity did ease, however, from June where the PMI stood at 52.9.

For Germany, the finalized PMI came in at 54.5, which was down from a June 55.8 and prelim 55.4. The mixed results left the Eurozone’s service sector PMI at 53.2, which was down from a prelim 53.3 and June 53.6.

The Eurozone’s Private Sector

According to the Eurozone Composite PMI survey,

• The Final Output Index came in at 51.5, which was in line with prelim, while down from a June 52.2.
• Private sector performance continued to diverge, with the service sector continuing to report a solid pace of growth. By contrast, the manufacturing sector saw an accelerated fall in production.
• The German economy struggled the most, with solid service sector activity being offset by a deteriorating manufacturing sector. Germany’s composite PMI reported the slowest rate of growth in over 6-years.
• A pickup in growth in Italy led to the composite rising to a 4-month high, while Spain’s composite fell to its weakest in almost 6-years. In spite of a 68-month low, Spain ranked 2^nd in July, coming in ahead of Italy in 3^rd.
• France was the best performer, in spite of a subdued rate of expansion across the private sector.
• For the Eurozone, continued weakness in demand was a drag on private sector performance once more. Whilst seeing a marginal pickup in the service sector, a marked slide in orders from the manufacturing sector weighed.
• In spite of weaker orders, firms continued to hire, though the pace of hiring was at its weakest since Apr-16.
• Optimism also deteriorated to its lowest level in just under 5-years, with German companies the least optimistic.

Ahead of the U.S session, the DAX30 was down by 1.27%, with the CAC40 down by 1.75%, the stats doing few favors on the day. The EuroStoxx600 was also deep in the red, sliding by 1.6% in the wake of the PMI numbers.

Out of the U.S

It was a relatively busy day on the economic calendar. The stats included finalized Markit service sector and composite PMIs and the market’s preferred ISM non-manufacturing PMI.

While the Markit Service PMI came in ahead of a prelim 52.2 and June 51.9, the focus was on the preferred ISM survey. According to the July ISM non-manufacturing survey,

• The PMI fell from 55.1 to 53.7 in July, weighed by a 5.1 percentage point slide in business activity sub-index to 53.1.
• New orders saw a slower pace of growth, with the sub-index falling from 55.8 to 54.1. The new export orders sub-index also eased back, falling from 55.5 to 53.5.
• On the positive, employment was on the rise, with the employment index rising from 55.0 to 56.2.
• 13 non-manufacturing industries reported growth in July, while 5 reported a decrease.

The stats weighed on the European majors, with the EuroStoxx600, DAX30, and CAC40 extending their losses in the U.S session.

The Market Movers

From the DAX, Adidas was the worst performer on the day, sliding by 5.22% ahead of Thursday’s earnings results. From the auto sector, Daimler was the worst performer, falling by 3.37%. BMW (-2.61%), Continental (-2.74%), and Volkswagen (-2.92%) weren’t far behind. Things were not much better for the banking sector, with Deutsche Bank and Commerzbank falling by 3.28% and 2.78% respectively.

From the CAC, Renault was the only stock to end the day in the green, rising by 1.2%. From the banking sector, BNP Paribas led the way down, falling by 1.79%. Credit Agricole and Soc Gen saw more modest losses of 0.77% and 0.09% respectively. On the day, high-end brands LVMH Moet Hennessy Vuitton and Hermes were amongst the biggest losers. LVMH tumbled by 4.23%, with Hermes ending the day down by 3.02%.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. Stats out of the Eurozone are limited to Germany’s factory orders for June.

The markets will be looking for a boost to support a pickup in manufacturing sector activity at the turn of the quarter.

From the U.S, June’s JOLTs job openings are unlikely to have a material impact on the European majors later in the day.

Outside of the numbers, any chatter on trade will continue to overshadow the numbers, however.

At the time of writing, the futures were deep in the red. The DAX was down by 215 points, while the Dow Mini was down by just 336 points. An early sell-off came in response to the U.S administration’s tagging of China as a currency manipulator.